Why this matters now
RBI is tested for: the Hilton-Young Commission 1926 → RBI Act 1934 → 1 April 1935 establishment timeline; nationalisation 1 January 1949; functions (note issue, banker’s bank, lender of last resort, monetary policy, forex management); the Monetary Policy Committee (MPC, since 2016, 6 members 3+3); current Governor Sanjay Malhotra; key rates (repo, reverse repo, SLR, CRR, MSF, bank rate); and the recently amended FEMA + Foreign Trade Policy 2023.
History & structure
The Hilton-Young Commission (Royal Commission on Indian Currency and Finance), 1926, chaired by Edward Hilton Young, recommended creation of a central bank for India. The RBI Act was passed on 6 March 1934 and the bank commenced operations on 1 April 1935 — originally a shareholders’ bank with paid-up capital of Rs 5 crore. First Governor: Sir Osborne Smith (1935-37). First Indian Governor: C.D. Deshmukh (1943-49) — who oversaw nationalisation on 1 January 1949.
Central Board of Directors:
- 1 Governor + 4 Deputy Governors (appointed by Central Govt, 3-yr term)
- 4 Directors from RBI’s 4 Local Boards (Mumbai, Delhi, Chennai, Kolkata)
- 10 Directors nominated by Central Govt
- 2 Finance Ministry representatives (non-voting)
HQ: Mumbai. 19 regional offices + 11 sub-offices. Subsidiaries: Deposit Insurance & Credit Guarantee Corporation (DICGC), Bharatiya Reserve Bank Note Mudran (BRBNM), Reserve Bank Information Technology (ReBIT), Indian Financial Technology & Allied Services (IFTAS).
Functions
- Issuer of currency notes (except Re 1 notes + coins by Min of Finance) — under Minimum Reserve System since 1957 (Rs 200 cr reserves: Rs 115 cr gold + Rs 85 cr forex).
- Banker to the Government — Centre + States (except Sikkim & J&K via SBI).
- Banker’s bank + Lender of Last Resort.
- Controller of Credit via Monetary Policy — quantitative (Repo, Reverse Repo, CRR, SLR, OMO, Bank Rate, MSF) and qualitative (margin requirements, moral suasion, credit rationing).
- Manager of Foreign Exchange — FEMA 1999 administration.
- Regulator of Banking System — Banking Regulation Act 1949.
- Developmental functions — financial inclusion, payment systems (UPI, NEFT, RTGS, IMPS).
Monetary Policy Committee (MPC)
Established by RBI Act amendment 2016 on the recommendation of the Urjit Patel Committee 2014. The MPC has 6 members:
- 3 from RBI: Governor (Chair), Deputy Governor in charge of monetary policy, 1 RBI officer nominated by Central Board.
- 3 external members appointed by Central Government on Search Committee recommendation (Finance Secretary chair).
MPC meets at least 4 times a year (currently 6 times). Decisions by majority; in case of tie, Governor gets casting vote. Mandate: inflation target 4% (+/- 2%) — set by Central Government in consultation with RBI, reviewed every 5 years. Current target 4% (range 2-6%) for 2021-26. Repo rate (as of June 2025): 6.00% (after 25 bp cut from 6.50% in April 2025).
Recent
Sanjay Malhotra (1968-), ex-Revenue Secretary, took over as 26th RBI Governor on 11 December 2024, succeeding Shaktikanta Das (Dec 2018 - Dec 2024) — a 6-year tenure that saw the longest Governor stint since Y.V. Reddy. Reserve Money + M3 metrics; Digital Rupee (e-Rupee) launched November 2022; UPI annual transactions FY24: 131 billion; RBI’s 90th anniversary: 1 April 2025.
UPSC angle
Know RBI — HILTON-YOUNG COMMISSION 1926 → RBI ACT 1934 (6 March) → 1 APRIL 1935 establishment; 1st Governor Sir OSBORNE SMITH 1935-37; 1st Indian Governor C.D. DESHMUKH 1943-49 (oversaw nationalisation); NATIONALISED 1 January 1949; HQ Mumbai Mint Road; Central Board: 1 Governor + 4 Dy Gov + 4 Local Boards Directors + 10 Govt nominees + 2 FinMin reps; subsidiaries DICGC + BRBNM + ReBIT + IFTAS; FUNCTIONS: issuer of currency MINIMUM RESERVE SYSTEM 1957 (Rs 200 cr = Rs 115 cr gold + Rs 85 cr forex), banker to Govt (Centre+States except Sikkim & J&K via SBI), banker’s bank + lender last resort, controller of credit (quantitative Repo/Reverse Repo/CRR/SLR/OMO/Bank Rate/MSF + qualitative margin/moral suasion/credit rationing), forex manager FEMA 1999, banking regulator Banking Reg Act 1949; MONETARY POLICY COMMITTEE est. RBI Act Amendment 2016 (URJIT PATEL COMMITTEE 2014 recommendation), 6 members 3 RBI + 3 external (Search Committee Fin Secy chair), Governor casting vote in tie, meets ≥ 4 times/yr (currently 6); INFLATION TARGET 4% +/- 2% (range 2-6% for 2021-26); 26th Governor SANJAY MALHOTRA 11 Dec 2024 succeeded SHAKTIKANTA DAS Dec 2018-Dec 2024; UPI FY24 131 bn transactions.
Frequently asked questions
When was RBI established?
On 1 April 1935 under the RBI Act 1934, on recommendation of the Hilton-Young Commission 1926. Nationalised on 1 January 1949.
Who is the current RBI Governor?
Sanjay Malhotra (26th Governor) — took office 11 December 2024, succeeded Shaktikanta Das.
What is the MPC?
Monetary Policy Committee — 6 members (3 RBI + 3 external) created by 2016 RBI Act amendment. Sets repo rate to meet 4% (+/- 2%) inflation target. Meets 4-6 times per year.
What is the inflation target?
4% with a tolerance band of +/- 2% (range 2-6%) — set by Central Government in consultation with RBI for 2021-26.